Japan's Nikkei stock average fell 2.1 percent on Friday, with resource-linked shares such as Mitsui & Co hurt after the US Federal Reserve's discount rate hike jolted commodities prices. Property shares tumbled after real estate investment advisory firm Davinci Holdings said its liabilites exceeded assets, highlighting risks for the sector, while Mizuho Financial dropped after a brokerage downgrade on recapitalisation concerns.
The Fed's discount rate hike lifted the dollar to a one-month high against the yen, boosting exporters in early trade but they lost ground as investors became nervous about how overseas markets would respond to the Fed's move.
"Put the US move together with last week's Chinese bank reserve requirement hike, which has yet to be reflected in Shanghai, and markets can't ignore them. After all, these are two of the world's largest economies," said Masayoshi Okamoto, head of dealing at Jujiya securities. "Yet the US move isn't really a bad one. While it may be tough for markets for several days, over the mid-term it's probably not so negative."
The benchmark Nikkei lost 212.11 points to 10,123.58 but still eked out gains of 0.3 percent on the week for its second week of gains in a row. Volume on the first section was subdued but the best this week. The broader Topix fell 1.7 percent to 889.08.
The Fed said it would raise the interest rate it charges banks for emergency loans to 0.75 percent from 0.5 percent, taking a step towards normalising emergency policy used to fight the worst financial crisis since the Great Depression.
But the Fed also said the move did not signal any change in the outlook for the economy or for monetary policy, and left its benchmark interest rate unchanged near zero. Markets were rattled last week after China raised its bank reserve requirement, raising worries that monetary tightening in the world's third-largest economy would be more aggressive than thought and potentially damage global growth. S&P 500 index futures lost 1.1 percent and investors were wary, particularly ahead of the weekend.
"There had been a recent swing toward a mood of optimism (in financial markets) but that may quickly head back toward pessimism. It is the type of factor that short-term traders do not like," said Nagayuki Yamagishi, strategist at Mitsubishi UFJ Securities, adding that the move was likely to inhibit risk-taking for a while.
Though some in the market said stocks could well be headed for a correction next week, support was likely to hold at 10,000. Resource shares took a hit as both oil and gold were sold, with oil falling more than a dollar to below $78 a barrel and gold shedding more than 1 percent. Metals slid.
Mitsubishi Corp lost 1.7 percent to 2,212 yen and fellow trading house Mitsui & Co shed 3.2 percent to 1,352 yen. Itochu Corp fell 3 percent to 701 yen. Smelter Toho Zinc fell 4.8 percent to 394 yen and ferronickel producer Pacific Metals lost 3.4 percent to 651 yen.
Real estate developer Mitsui Fudosan lost 4.3 percent to 1,461 yen and Mitsubishi Estate also shed 4.3 percent to 1,354 yen. The real estate subindex shed 3.8 percent to become the biggest loser among the subindexes. Mizuho Financial Group, Japan's second-largest bank, lost 2.8 percent to 171 yen after Goldman Sachs cut Mizuho's rating to "sell" from "neutral" on Friday.
Toyota Motor Corp fell 1.8 percent to 3,300 yen. President Akio Toyoda saying he intends to give a "sincere explanation" about the company's series of safety recalls when he testifies in front of US lawmakers next week. A House oversight panel said it had also issued a subpoena for internal documents Toyota had fought to keep sealed in a legal battle with a former employee who says the automaker routinely hid evidence of safety problems.
Trading volume was subdued, with 1.8 billion shares changing hands on the Tokyo exchange's first section -well below the average daily volume last month of roughly 2.6 billion shares, and also below last year's daily average of 2.3 billion shares. Declining shares outnumbered advancing ones by nearly 9 to 1.
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